Storms have already taken their toll on the insurance market in Louisiana, making it a "tough place to do business," according to Jeff Albright, president of the Independent Insurance Agents and Brokers of Louisiana. Storms Laura, Delta, and Zeta cost insurers $10.6 billion over the last two years, while Ida alone cost $30 billion, forcing some carriers to declare bankruptcy.
In recent weeks, a handful of insurance companies in Louisiana canceled nearly 80,000 policies. As carriers withdraw, residents are not only scrambling to find new coverage, but they are also faced with limited options. They may turn to other carriers, which double their premiums overnight, or to Louisiana Citizens, the state's insurer of last resort.
However, Louisiana law requires Citizens' premiums to be higher than the highest private rates among major insurance carriers in order to avoid competition with the private market.
Matt DeMeyers, 45, a real estate developer in the New Orleans suburb of Metairie, described the process of finding a new insurance policy as "frustrating." In late May, he received notice that his insurance policy would expire on July 1. When DeMeyers was offered a new plan, his annual premium nearly doubled to over $23,000.
According to Robert Stone, a New Orleans-based insurance agent, "premiums are double, if not triple" what they were before 2020 across the state.
Homeowners in Florida are dealing with the same issue. The increased risk of large storms making landfall — following Hurricanes Harvey, Michael, Florence, Dorian, and Ida — combined with a flood of litigation has dealt a major blow to the state's insurance market.
After an insurance rating agency downgraded the firm's financial standing, Federated National, which insured 140,000 Florida policyholders, was forced to enter into a court-ordered restructuring agreement and cancel 56,000 plans.
Ivis Fernandez, a real estate agent in Homestead, 35 miles south of Miami, was disappointed to learn that her FedNat policy had been canceled. She explained that it was her second home insurance policy in three months. She showed a reporter paperwork demonstrating that she was paying the carrier $3,002 per year, compared to $1,682 with another insurer in 2019.
Climate change, which is fueling more intense storms, according to catastrophe risk modelers, will continue to stress insurance markets and make it more difficult to obtain affordable coverage.
According to Carolyn Kousky, executive director of the University of Pennsylvania's Wharton Risk Center and a climate risk management expert, as storms intensify, the likelihood of large-scale property damage increases. To protect themselves from bankruptcy-triggering losses, insurance companies must amass even more capital to pay for all claims from homeowners.
Companies and homeowners have not made the necessary changes to adequately prepare for a world of greater risk, according to Kousky.
"What it really comes down to, in my opinion, is that insurance costs are related to risk, and so insurance costs rise when risk rises," she explained. "The real way to sort of solve this problem is to reduce the underlying risk — and we haven't done that nearly enough in any place that's prone to these disasters right now," says a researcher.
Experts also wonder if officials in vulnerable US cities are financially prepared to protect homeowners and urban infrastructure from storm surges and winds.
"New York, for example, may have enough money to build a large flood wall," said Dag Lohmann, CEO of KatRisk, a climate catastrophe modeling firm. However, he believes that other locations may lack the necessary resources.